There is no doubt that 2020-2021 has been shrouded in persistent uncertainty for many, with the COVID-19 pandemic causing many sectors to shift in response. As consumers take a step back to re-evaluate career decisions, spending habits, and milestone goals such as homeownership,
we are seeing renewed enthusiasm and interest in multi-family real estate.
Prior to the pandemic, residential multi-family investment was arguably at its peak, after experiencing an upward expansion over the last decade. With rent growth slowing to a crawl, there was some looming concern around certain multi-family submarkets being in a supply bubble. But, now with a higher-inflation environment and new demands for supply, it’s a good time to revisit how investing in residential multi-family real estate can hedge against inflation and market volatility.
Why Residential Multi-Family Real Estate is Shifting Into Growth Mode
The economic uncertainty of the next few years and the fallout that consumers will need to weather, has many thinking about accessibility, flexibility, and affordability. For instance, many individuals who were contemplating a career change, found themselves either being forced into the change via a pandemic lay-off, or found themselves with opportunities like telecommuting. This opened up the doors for moving cities, and capitalizing on finding more affordable places to live.
With remote work, the desire to be closer to loved ones, and income loss due to unemployment in mind, many consumers are finding that home buying is an unattractive or impossible financial outcome to bear. With many millennials finding themselves priced out of the housing market completely, we are seeing a shift towards multi-family residences as an alternative to house families, save more money, and provide them with the freedom to be flexible with careers, and family growth.
How Multi-Family Real Estate Can Hedge Against Inflation
Now that we know why multi-family real estate is seeing a shift into growth mode, here is why it’s a good investment against inflation.
- Stocks, bonds, and fixed-rate vehicles will take a hit as inflation continues to rise in our post-pandemic world. Multi-family properties on the other hand, have low market volatility as they can quickly adapt to the fluctuating market. For instance, you can mitigate the effect of inflation by increasing rent costs on your managed properties through periodic rent reviews which are built directly into the leases.
- Residential multi-family investment is real and tangible. It holds intrinsic value, in that it is a necessity-based asset that is scarce. In densely populated urban settings, if there is a limited supply of properties, and limited supply of land to build on, the value of these existing properties is going to increase with demand. And given the rising costs of steel, timber, and energy due to pandemic-related supply shortages, building new properties is too expensive. Plus, these existing properties are going to sell lower than their replacement cost, and their value is unlikely to decrease even as inflation rises.
- Multi-family is favored when looking at the trends regarding asset pricing. A residential multi-family property is going to provide another source of liquidity to investors, making it advantageous from a capital standpoint.
- While multi-family assets are costly to acquire, getting a loan for one is more likely to be approved by the bank, as they provide a consistent income, render strong cash flow, and have steady value appreciation. With the new demand for multi-family real estate, this makes it favorable to finance.
Wrapping It Up
The COVID-19 pandemic and the drastic shifts we are seeing in consumer preferences have created the perfect storm for new and sustained growth in residential multi-family real estate. As a result, it’s a good idea to invest, as the general supply and demand are going to persist over the next few years.
At Kanga Property Management, we are committed to helping property owners avoid common tenant screening mistakes. We can take over all the responsibility of being a landlord so you can focus on other things. Call us at (877) 589-3591 or contact us today to start making the most out of your real estate property.